New York Adopts Force-Placed Insurance Regulation
By Margaret Wright, J.D.
Effective February 6, 2015, New York has adopted regulations concerning force-placed insurance. As a result of an investigation, the New York State Department of Financial Services had found that current force-placed insurance practices were resulting in excessive force-placed insurance rates, inadequate notice to consumers and questionable business practices and relationships.
The new regulation requires borrower notification prior to the issuance of force-placed insurance. If an insurer, insurance provider, or affiliate mails or delivers to a borrower a force-placed insurance notice on behalf of a servicer , it must deliver to the borrower or place in the mail a written notice in accordance with the Federal Servicing Rules concerning Force-Placed Insurance ( 12 CFR § 1024.37).
The notice must be delivered or placed in the mail at least 45 days prior to assessment of any force-placed insurance charges. Additionally, a 15 day period is required beginning on the date the notice was delivered or placed in the mail to allow the borrower to provide evidence that he or she has adequate insurance in place. Per 12 CFR § 1024.37, the written notice must include:
(i) The date of the notice;
(ii) The servicer’s name and mailing address;
(iii) The borrower’s name and mailing address;
(iv) A statement that requests the borrower to provide hazard insurance information for the borrower’s property and identifies the property by its physical address;
(v) A statement that the borrower’s hazard insurance is expiring or has expired, as applicable, and that the servicer does not have evidence that the borrower has hazard insurance coverage past the expiration date, and that, if applicable, identifies the type of hazard insurance for which the servicer lacks evidence of coverage;
(vi) A statement that hazard insurance is required on the borrower’s property, and that the servicer has purchased or will purchase, as applicable, such insurance at the borrower’s expense;
(vii) A statement requesting the borrower to promptly provide the servicer with insurance information;
(viii) A description of the requested insurance information and how the borrower may provide such information, and if applicable, a statement that the requested information must be in writing;
(ix) A statement that insurance the servicer has purchased or purchases:
(A) May cost significantly more than hazard insurance purchased by the borrower;
(B) Not provide as much coverage as hazard insurance purchased by the borrower;
(x) The servicer’s telephone number for borrower inquiries; and
(xi) If applicable, a statement advising the borrower to review additional information provided in the same transmittal.
New York additionally requires, on a separate piece of paper provided along with the written notice, that it must be clearly and conspicuously disclosed that an insurance, insurance provider, affiliate or other third party is staffing the mortgage servicer’s telephones if that is the case. The front of the envelope for a mailed notice must include a notice printed in a “readily noticeable contrasting color with a font size of at least 12 point” that the mailing contains important homeowner’s insurance information.
Proof of Existing Insurance
Where a borrower provides a reasonable form of written confirmation that an existing hazard insurance policy is compliant with the mortgage requirements, the insurer, insurance producer or affiliate shall accept the same. The insurer, insurance producer or affiliate may require a copy of the borrower’s hazard insurance policy declaration page, insurance certificate or insurance policy for confirmation. Correspondence received from the borrower may be rejected if neither the borrower’s insurer nor the borrower’s insurance producer provides confirmation of the hazard insurance information submitted, or if the terms and conditions do not comply with the borrower’s mortgage loan contract requirements.
Where evidence is provided showing the borrower had in place adequate hazard insurance; the insurer, insurance producer or affiliate shall remove the force-placed insurance and provide a refund for overlapping coverage within 15 days of receipt of the evidence of coverage.
To address the questionable business practices and relationships arising from the Department’s investigation, the regulation prohibits insurers from certain force-placed insurance practices where the servicer is an affiliate of the insurer. In part, an insurer may not issue force-placed insurance on mortgage property serviced by an affiliate or compensate said affiliate with respect to force-placed insurance.
Minimum Loss Ratio and Rate Filings
The regulation additionally sets forth minimum loss ratios and rate filing requirements which will become effective subsequent to the initial regulation effective date. Force-placed insurance premium rates may be filed with a permissible loss ratio of at least 62 percent. Separate rate classifications are required for force-placed insurance and hazard insurance obtained on REO properties.
Each year, no later than April 1st, an insurer must submit and annual statement including the following information:
1. Actual loss ratio
2. Earned premium
3. Itemized expenses including expenses for tracking, monitoring and cancellation
4. Paid losses
5. Loss reserves
6. Case reserves; and
7. Incurred but not reported losses.
Within 30 days of submitting the annual statement, an insurer must refile its force-placed insurance premium rates for any policy that had an actual loss ratio of less than 40 percent for the preceding calendar year. An insurer shall not include expenses incurred in connection with insurance tracking in the force-placed insurance rate.
Additionally, force-placed insurance premium rates must be re-filed once every three years as supported by acceptable required data and actuarial analysis.
View the regulation in its entirety:
About the Author:
Margaret Wright, J.D. is Vice President and Regulatory Compliance Director at Bankers Advisory. She is a graduate of Stonehill College and earned her Juris Doctor at Suffolk University Law School. She is admitted to the Massachusetts Bar. She can be reached at Margaret@bankersadvisory.com